Balsillie's exit clears RIM's path for new strategy

Research In Motion (RIM) Co-Chief Executive Officer Jim Balsillie arrives at the annual general meeting of shareholders in Waterloo July 12, 2011. (MIKE CASSESE/MIKE CASSESE/REUTERS)

Before Research In Motion Ltd.’s new chief executive officer, Thorsten Heins, could take the troubled smartphone giant down a radically different path, the company’s board of directors knew that something had to be done.

Jim Balsillie, one of the two men who led the company to huge global success, had stepped down as co-CEO in January in a management shakeup. But he remained on RIM’s board, and some directors saw him as fighting to maintain the company’s existing strategy, according to people familiar with the situation. That was a problem, because Mr. Heins and many others had come to believe that more drastic change was necessary.

Story continues below ad

It was time for Mr. Balsillie to go. So he did.

His departure from the board on Thursday severed RIM’s ties to the key architect of the company’s growth to what was a $20-billion company. Mr. Balsillie championed the Canadian-designed BlackBerry during marathon 80- to 90-hour work weeks, with seven-day-a-week responsibilities that stretched across RIM’s global network and across multiple time zones. His leaving marks the clear and final exit from RIM of a man synonymous with the BlackBerry in Canada, one of the country’s most famous entrepreneurs, known widely for his drive, his temper, his passion, and his philanthropy in Waterloo – as well as his inability to secure an NHL franchise he badly wanted.

His two-month stint on the board was an “almost cosmetic” move, sources said, at a time when it was clear to many that there was growing tension between him and former co-CEO Mike Lazaridis, who stepped down alongside Mr. Balsillie in January, but is still a director. (Mr. Balsillie, through a RIM spokesperson, declined an interview request).

Mr. Balsillie was primarily responsible for RIM’s business model of pursuing growth through wireless carriers and among companies’ chief information officers – a strategy that has come crashing down around the Waterloo, Ont.-based company. Consumers, not executives, are now driving the smartphone market and are increasingly opting for Apple Inc.’s iPhones and devices running Google Inc.’s Android. RIM was left with an awkward marketing and sales strategy, stuck aimlessly between appealing to both enterprise and consumer customers.

“Jim’s comfort was obviously how he built the company … It was CEOs, CIOs, very blue-chip America. That’s how the whole thing began,” one former executive said. “There was a very evident inertia in trying to get the shifts within the BlackBerry product range and (workplace) culture to get it more aligned to the consumer.

“That now has absolutely changed.”

With Mr. Balsillie gone, it’s Mr. Heins’s show now, and he is now clear to take the company in a new direction. Analysts believe a new strategy is desperately needed as the company’s sales nosedive, inventory builds up, and competitors such as Apple and Google continue to expand presence in the emerging markets that RIM has long dominated.

On Thursday, for the first time, a RIM executive acknowledged the sheer scale of the problems facing the company and, though not promising success, told investors that all options were being considered by an executive team that was realistic about where the company stands.

“I did my own reality check on where the company really is,” Mr. Heins said. “It is very clear to me that substantial change is what RIM needs.”

RIM’s chief executive officer elaborated on what this strategy would look like in a surprisingly bleak conference call with analysts, as the company announced dismal fourth-quarter earnings that fell short of guidance for the fifth quarter in a row and a number of senior executives left the company in another shakeup. Mr. Heins did not rule out selling the company, said the company would refocus on enterprise clients and its valuable global network infrastructure, and explore partnerships and software licensing deals with hardware rivals.

RIM stressed on Friday it is also not pursuing a sale aggressively, a person close to the company said. (Federal Finance Minister Jim Flaherty, in comments to reporters on Friday, suggested Ottawa would not use the Investment Canada to block such a deal.) A more likely outcome would be jettisoning non-core divisions of the company, a source said, or – as Mr. Heins himself outlined on the call – exploring partnerships or joint ventures.

Mr. Heins said he would also realign the company’s internal processes and management with the new priorities. According to former employees who know RIM’s corporate structure, the departure of Alan Brenner, who was senior vice-president for platform services, is likely a sign that RIM is abandoning at least some of its in-house content projects, such as travel apps, as it tries to deliver its next-generation BlackBerry 10 operating system, due out in late 2012.

The idea is that third-party application developers should be the specialists making apps for the platform, as opposed to RIM wasting management focus and talent on the task, and that RIM could find partners in areas where it is currently weak, such as media, as Mr. Heins said on Thursday.

A large part of RIM’s current problems, which the company said will put the company under financial pressure until fiscal 2013, is the gradual erosion of RIM’s international strongholds in high-growth emerging markets such as Nigeria or Argentina. These markets have cushioned the company’s huge sales drop-offs in the United States, and provided shareholders with comfort that even as BlackBerrys lost cachet in the developed world, that they were being snapped up in large volumes overseas.

But Mr. Heins noted that “this success did not go unnoticed by our competitors” and RBC Dominion Securities analyst Mike Abramsky pointed out that this quarter saw RIM’s first-ever decline in international market revenue, which dropped 7 per cent year-over-year. Low-cost handset competitors such as Shenzhen-based global giant Huawei Technologies have latched onto Google’s Android and used it to make forays into markets where Apple is nowhere to be seen, but where RIM has been for years, laying the groundwork for sustainable international growth.

While acknowledging that RIM has no high-end phones in the U.S. market and that full touch-screen BlackBerrys were in a “challenging position” given competitors such as the iPhone, Mr. Heins said the company would unleash new entry-level versions of its current smartphones into emerging markets.

That’s unlikely to do anything for RIM’s increasingly grim results in the short term. However, one former executive said the company was blasting out all its bad news at once, including writedowns and management departures, as it pushes forward unencumbered by the weight of hiding all of its bad news.

“It’s the most important thing they could possibly do, to admit all this stuff – whether it’s alcoholics anonymous or any other thing, marital problems, admitting you have a problem is the first step to a resolution,” said one person close to the company. “And it’s really refreshing to hear that.”